Does corporate governance affect the valuation of Spanish IPOs? The role of ownership structure and the board of directors

ABSTRACT

We analyse the influence of the board of directors and ownership structure on the valuation of initial public offering (IPOs) in the Spanish capital market during the period 1998–2013. After controlling for other influences such as the auditor’s reputation, the underwriter’s reputation and the level of information asymmetry, our results lend strong support for the hypothesis of the influence exerted by ownership concentration over the level of IPO underpricing. Moreover, we find a nonlinear relationship between the proportion of shares in the IPO belonging to members of the board of directors and the level of underpricing. Other IPO and firm characteristics such as the size of the offer and its structure also prove to be statistically significant. Finally, we find that the market cycle influences the valuation of IPOs, as the relationship between the market return and the initial IPO return is positive and statistically significant.

RESUMEN

En este trabajo analizamos la influencia del consejo de administración y la estructura de propiedad en la valoración de las Ofertas Públicas Iniciales (OPIs) en el mercado de capitales español durante el período 1998-2013. Tras controlar por otras influencias tales como la reputación del auditor, la reputación del asegurador y el nivel de información asimétrica, nuestros resultados arrojan un fuerte apoyo para la hipótesis de la influencia ejercida por la concentración de la propiedad sobre el nivel de infravaloración de las OPIs. Así mismo, encontramos una relación no lineal entra la proporción de acciones de la OPI que pertenecen a los miembros del consejo de administración y el nivel de infravaloración. Otras características de la OPI y de la empresa tales como el tamaño de la oferta y su estructura también resultan estadísticamente significativas. Finalmente, encontramos que el ciclo de mercado influencia la valoración de las OPIs, dado que la relación entre la rentabilidad de mercado y la rentabilidad inicial de la OPI es positiva y estadísticamente significativa.

CLASIFICACIÓN JEL:

• D73
• G30
• H11
• H26

KEYWORDS:

• Corporate governance
• board of directors
• ownership structure
• pricing
• initial public offerings (IPOs)

PALABRAS CLAVE:

• Consejo de Administración
• estructura de propiedad
• valoración
• OPIs (Ofertas Públicas Iniciales)

JEL CLASSIFICATION:

• D73
• G30
• H11
• H26

Acknowledgement

The authors are grateful for the helpful comments of an anonymous referee and from participants at the 6^th IFABS International Conference held in Lisbon (June, 2014), the XXIV ACEDE Conference, held in Castellón (September, 2014), and the XXII Finance Forum held in Zaragoza (November, 2014). This study was financially supported by the Spanish Ministry of Economy and the ERDF under grants: MINECO-16-ECO2015-66184-R and ECO2014-56102-P, respectively. This research was also prepared within the framework of the Basic Research Program at the National Research University Higher School of Economics (HSE) and supported within the framework of a grant awarded to the HSE by the Government of the Russian Federation for the implementation of the Global Competitiveness Program.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. The chance to raise public awareness about a company, its name, products and geographical markets is limited, since any publicity that creates a favourable attitude toward the company’s securities might be considered illegal.

2. See Ritter (1984), Ritter (1991), Beatty and Ritter (1986), Miller and Reilly (1987), James and Wier (1990), Slovin and Young (1990), Clarkson and Merkley (1994), Göppl and Sauer (1990), Wasserfallen and Wittleder (1994), Ljungqvist (1997), Finn and Higham (1988), among others.

3. As do Bertoni et al. (2014), we consider mimicking behaviour as an instrument. However, the literature has shown possible endogeneity between a firm´s IPO value and its board of directors´ structure. Tobin´s q and the board of directors can be jointly affected by the firm´s unobserved characteristics, which may result in spurious correlations. Accordingly, IPO underpricing is the dependent variable of the model in our research. Our results prove that endogeneity is not biasing our findings.

Additional information

Funding

This work was supported by the Ministerio de Economía y Competitividad [ECO2014-56102-P]; [ECO2017-84864-P];Ministerio de Economía y Competitividad [MINECO-16-ECO2015-66184-R].